A constraint for patent departments in companies both large and small is their budgets. According to in-house sources, costs are not rising enormously but are going up with inflation and IP units are increasingly expected to do more with less money. One source says his patent budget has not changed in six years.

Six corporate lawyers from patent-focused businesses tell Managing IP that these pressures are driving in-house counsel to find efficiency and cost-saving gains – and one place they’re looking to more and more is their patent portfolios.

The challenge is to find the right balance in portfolio expenditure so that the business is sufficiently protected but not over-covered. To do that, counsel are increasingly setting up cost-monitoring and value appraisal systems to work out which patents add value to the business and which do not. But such mechanisms can be tricky to get right.

“Once you know what you have and what you spend on it, you can work out whether it is a good investment or not,” explains a senior European patent attorney at a Swiss confectionery company. “It is difficult, however, to measure the value of a patent portfolio or accurately measure costs.”

Know your value

The first challenge for patent departments looking to get more for less from their portfolios then is working out how to value patents. A good way for businesses to do that, according to in-house counsel, is to review portfolios using set indicators to determine value.

The confectionery patent attorney says that value assessment should not be a matter of simply gauging monetary value, but how much of the business’s portfolio is protected, to what extent and how widely as well.

An IP manager for a large plastics manufacturer agrees that this is an effective way to evaluate patent value, but adds value indicators should, and likely will, vary between different businesses and sectors and what they’re looking to achieve from their IP.

“I’m not sure the same system could be implemented for every business, although there are clear criteria that we may have in common,” he explains. “The evaluation system I have put in place is focused on the key criteria we want to focus on, and I’m not sure another company would do the same sort of analysis.”

He adds that many companies, such as his, are beginning to put similar mechanisms in place to gauge the protective potential of the firm’s patent portfolio.

His company has set up a yearly review process that begins six months before the start of the fiscal year, which involves looking at each patent in each country and speaking to people from R&D, sales, marketing and communications. The firm then evaluates each title based on objective and subjective criteria, such as the age of the patent, its defensive potential, the activity surrounding it and enforcement success rates to determine which registrations to invest in.

The head of IP at the commercial arm of a UK university adds that such an analysis is a useful exercise because it helps companies put their patents into a pecking order – but it is not always an easy process.

Cost analysis

But the value of a patent is ultimately determined after it is offset with the overheads for establishing and maintaining that right.

The confectionery patent attorney says overall patent value depends on factors such as how much it costs to register and renew patents in the areas the business needs them in, how hard the business will need to fight IP offices to get the rights granted and how often and in what ways it will need to enforce those rights.

“We have not cracked the nut just yet,” he says. “We have some mechanisms in place but these solutions may not be perfect and it is an evolving process.”

And calculating those costs is not an easy feat, according to in-house counsel. The head of IP at a telecommunications company explains that official costs, such as registration and renewal fees, can easily be recorded, but unexpected costs or external costs, such as enforcement expenses, are more difficult to predict.

“Costs is a very complex topic and my biggest obstacle in patent portfolio management,” he says. “There are companies working on that with a good amount of success. We are also working on our own tech solution to this problem.”

The IP manager at a Cambridge-based tech company agrees that external costs are tricky, and adds that his company’s biggest challenge is predicting when an examiner will fail to understand the inventive step of a particular invention and the business will need to spend time and money sending further explanation and evidence or otherwise challenging the rejection.

In-house counsel tell Managing IP that software solutions will likely become more prevalent in these kind of cost appraisals. The telecommunications head of IP says that software solutions can help find indicators to help businesses make effective value evaluations, such as the scope of a patent family. But soon they may also be able to provide a relatively reliable forecast of portfolio costs.

The tech IP manager adds: “I have had conversations with other IP counsel who have used patent management suites to anticipate costs with a good degree of accuracy.” He says that the next step is to have a rational means of determining where to spend and save money.

Choosing patents

Once a business has determined a patent’s total value, it can decide on the right level of expenditure to buttress its defensible capability.

Of course, the portfolio analysis process is as much about finding patents that the business can get rid of as much as finding those that should be invested in. A patent for an idea that did not turn out to be valuable or could not be commercialised is usually a drain on the business – one that sucks up resources that could be better spent on business-critical IP and ultimately reduces profit.

The director of IP at a multinational pharmaceutical firms tells Managing IP that this is quite a common problem in the drug manufacturing industry, which has a tendency to patent every invention it comes across because it could have the potential to become a medicine.

To solve this problem, his company has been going through a process of looking at patents after five to eight years and assessing whether they’re likely to be commercialised, shared in a research project or further developed, rather than maintaining the registrations until their expiry.

“If the invention is unlikely be used in any of those capacities, we abandon the patent,” he says. “We’re also trying to be more diligent when it comes to what we file for in the first place.”

The director adds that in any pharmaceutical patent portfolio there will be registrations with clear commercial or patient value and there will be those with questionable added value, and the point of this exercise is to work out which ones are which. This trend, he says, can be seen in many large pharmaceutical companies – although there are many others that are continuing the traditional patent-everything strategy.

The head of IP at a telecommunications firm says shedding patents is a sensible strategy because not only does it reduce renewal fees but a patent department can work with a portfolio of 200 patents, for example, much more easily and efficiently than on one containing 300.

But patent counsel do not necessarily need to get rid of the IP altogether. The UK university IP head says that his organisation undergoes a similar annual process of determining patent value and then chooses to either shed the patents or to reduce investment in it.

“If we have not got anywhere with a patent and not found a commercial partner, we do a cost-cutting exercise where we cut countries out,” the IP head says. “We are not frivolous but we may whittle down coverage to the bare minimum.

“If we want to shed the patent, we offer it back to the inventors to develop their invention as they wish.”

Stagnant budgets are forcing in-house counsel to be more stringent with their portfolio spending but there are clearly wins to be made by working out which patents are worth the business’s while. The process is tricky but as processes evolve and software solutions become more sophisticated, patent departments will get better and better at shedding portfolio costs.